eBook (Downloadable)

Book

Rent your property confidently

The most important document you and your tenant will sign is a lease or rental agreement. This best-selling book will help you be a successful landlord by giving you everything you need to rent and manage tenants at your residential property, including forms with step-by-step directions. This revised edition provides updated 50-state legal charts on security deposits, rent rules, access to rental property and disclosure laws, plus new information on rent-to-buy (also known as lease-option) contracts.

"On my scale of one to 10, this excellent book rates a solid 10." -Robert Bruss, real estate attorney and nationally syndicated columnist

Ralph Warner

Ralph "Jake" Warner, a pioneer of the do-it-yourself law movement, founded Nolo with Ed Sherman in 1971. Nolo began publishing do-it-yourself law books written by Jake and his colleagues after numerous publishers rejected them. When personal computers came along, he added software to many Nolo books. When the Internet arrived, he championed the move online, where Nolo published huge amounts of free legal information.

Warner holds a law degree from Boalt Hall School of Law at the University of California at Berkeley and an undergraduate degree in history from Princeton.

Table of ContentsYour Lease and Rental Documents Companion 1

Chapter 1Preparing a Lease or Rental Agreement 5Which Is Better, a Lease or a Rental Agreement? 7Instructions for Completing the Lease or Rental Agreement Form 9Instructions for Signing the Lease or Rental Agreement 41Lease-Option Contracts (Rent-to-Buy) 43

Chapter 1 Preparing a Lease or Rental Agreement

This chapter provides step-by-step instructions on how to prepare a lease or rental agreement form. It discusses important issues that relate to your choices—as to both the type of document and the specific provisions—including any state, federal, and local laws that may apply.

See an Expert

The lease and rental agreement forms are legally sound as designed. If you change important terms or make major changes, however, you may affect a form’s legal validity. In this case, you may wish to have your work reviewed by an experienced landlords’ lawyer.

Which Is Better, a Lease or a Rental Agreement?

One of the key decisions you need to make is whether to use a lease or a rental agreement. Often, but by no means always, your choice will depend on how long you want a tenant to stay. But, since other factors can also come into play, read what follows carefully before evaluating your own situation and making a decision.

Month-to-Month Rental Agreement

A written rental agreement provides for a tenancy for a short period of time. The law refers to these agreements as periodic or month-to-month tenancies, although it is often legally possible to base them on other time periods, as would be the case if the rent must be paid every two weeks. A month-to-month tenancy automatically renews each month—or other agreed-upon period—unless the landlord or tenant gives the other the proper amount of written notice (typically 30 days) and terminates the agreement.

Month-to-month rental agreements give landlords more flexibility than leases. You may increase the rent or change other terms of the tenancy on relatively short notice (subject to any restrictions of local rent control ordinances—see “Rent Control,” below). And with proper notice, you may also end the tenancy at any time (again, subject to any rent control restrictions). (Chapter 4 discusses notice requirements to change or end a rental agreement.) Not surprisingly, many landlords prefer to rent month to month, particularly in urban areas with tight rental markets where new tenants are usually easily found and rents are trending upwards.

On the flip side, a month-to-month tenancy almost guarantees more tenant turnover. Tenants who may legally move out with only 30 days’ notice may be more inclined to do so than tenants who make a longer commitment. Some landlords base their rental business strategy on painstakingly seeking high-quality, long-term renters. If you’re one of those, or if you live in an area where it’s difficult to fill vacancies, you will probably want tenants to commit for a longer period, such as a year. As discussed below, a fixed-term lease, especially when combined with tenant-friendly management policies, may encourage tenants to stay longer. However, it is no guarantee against turnover.

Fixed-Term Lease

A lease is a contract that obligates both you and the tenant for a set period of time—usually six months or a year, but sometimes longer. With a fixed-term lease, you can’t raise the rent or change other terms of the tenancy until the lease runs out, unless the lease itself allows future changes or the tenant agrees in writing to the changes.

In addition, you usually can’t ask a tenant to move out or prevail in an eviction lawsuit before the lease term expires unless the tenant fails to pay the rent or violates another significant term of the lease or the law, such as repeatedly making too much noise, damaging the rental unit, or selling drugs on your property. This restriction can sometimes be problematic if you end up with a tenant you would like to be rid of but don’t have sufficient cause to evict.

To take but one example, if you wish to sell the property halfway into the lease, the existence of long-term tenants—especially if they are paying less than the market rate—may be a negative factor. The new owner usually purchases all the obligations of the previous owner, including the obligation to honor existing leases. Of course, the opposite can also be true: If you have good, long-term tenants paying a fair rent, the property may be very attractive to potential new owners.

At the end of the lease term, you have several options. You can:

decline to renew the lease, except in the few areas where local rent control requirements prohibit it

sign a new lease for a set period, or

do nothing—which means, under the law of most states, your lease will usually turn into a month-to-month tenancy if you continue to accept monthly rent from the tenant.

(Chapter 4 discusses in more detail how fixed-term leases end.)

Although leases restrict your flexibility, there’s often a big plus to having long-term tenants. Some tenants make a serious personal commitment when they enter into a long-term lease, in part because they think they’ll be liable for several months’ rent if they leave early. And people who plan to be with you over the long term are often more likely to respect your property and the rights of other tenants, making the management of your rental units far easier and more pleasant.

Caution

A lease guarantees less income security than you think. As experienced landlords know well, it’s usually not hard for a determined tenant to break a lease and avoid paying all of the money theoretically owed for the unused portion of the lease term. A few states allow tenants to break a lease without penalty in specific circumstances, such as the need to move to a care facility. (In addition, tenants who enter military service are entitled to break a lease, as explained in “Special Rules for Active Military Tenants” in Chapter 4.) And many states require landlords to “mitigate” (minimize) the loss they suffer as a result of a broken lease—meaning that if a tenant moves out early, you must try to find another suitable tenant at the same or a greater rent. If you rerent the unit immediately (or if a judge believes it could have been rerented with a reasonable effort), the lease-breaking tenant is off the hook—except for the obligation to pay for the few days or weeks the unit was vacant, plus any costs you incurred in rerenting it. (Chapter 4 discusses a landlord’s responsibility to mitigate damages if the tenant leaves early.)

As mentioned, you’ll probably prefer to use leases in areas where there is a high vacancy rate or it is difficult to find tenants for one season of the year. For example, if you are renting near a college that is in session for only nine months a year, or in a vacation area that is deserted for months, you are far better off with a year’s lease. This is especially true if you have the market clout to charge a large deposit, so that a tenant who wants to leave early has an incentive to find someone to take over the tenancy.

Tip

Always put your agreement in writing. Oral leases or rental agreements are perfectly legal for month-to-month tenancies and for leases of a year or less in most states. While oral agreements are easy and informal, it is never wise to use one. As time passes, people’s memories (even yours) have a funny habit of becoming unreliable. You can almost count on tenants claiming that you made, but didn’t keep, certain oral promises—for example, to repaint their kitchen or to not increase the rent. Tenants may also forget their own key agreements, such as no subletting. And other issues—for example, how deposits may be used—probably aren’t covered at all. Oral leases are especially dangerous, because they require that both parties accurately remember one important term—the length of the lease—over a considerable time. If something goes wrong with an oral rental agreement or lease, you and your tenants are all too likely to end up in court, arguing over who said what to whom, when, and in what context.

Tips for Landlords Taking Over Rental Property

If you’ve recently bought (or inherited) property, you will likely be inheriting tenants with existing rental agreements or leases. Be sure the last owner gives you copies of all tenant and property files, including leases and rental agreements, details on deposits (location and amounts), house rules, maintenance and repair records, and all other paperwork and records relevant to the property. If you want to change any of the terms of the lease or rental agreement, follow our advice in the first part of Chapter 4.

Instructions for Completing the Lease or Rental Agreement Form

This section explains each clause in the lease and rental agreement forms that are provided in this book, and how to fill in any blanks (in many cases, there will be nothing to fill in). When relevant, you will be asked to check the state law charts in Appendix A to see whether your state has a specific rule that you’ll need to enter, such as the amount of notice you give tenants before entering the rental property. Except for Clause 4, Term of the Tenancy, the lease and rental agree­ment forms are identical, covering the basic terms of the tenancy, such as the amount of rent and due date.

Check Your Local Laws

In some cities or counties, local ordinances or laws (particularly rent control laws) may apply to your rental business. In addition, these laws may affect the lease itself by requiring certain language or information to be in the document. We cannot list local requirements for every locality in the United States, but we can suggest that, to be extra careful, you take a moment to find out whether local laws affect your residential lease.

Fortunately, many cities and counties have placed their local laws online. To find out whether your local government has done so, go to www.statelocalgov.net and look for your state and city. Or, simply call your local government offices, ask whether residential rentals are covered by local ordinances and, if so, where you can obtain a copy. If local law varies from your state law—by imposing an interest requirement for security deposits, for example—be sure to follow the local rule. You may need to modify this lease accordingly.

You may be tempted to simply use the form in the back of this book (if you’re using a print copy), or download the lease or rental agreement from the Nolo website, and skip over detailed instructions. This would be a mistake. If there is one area of landlord-tenant law where details count, this is it. Make sure you really do have the information necessary to create a lease or a rental agreement that accurately reflects your business strategy and complies with all the laws of your state.

How to Edit (or Add) a Lease or Rental Agreement Clause

You may want to change our lease and rental agreement forms in some situations, and the instructions suggest possible modifications for doing so, including how to prepare an attachment (see “How to Prepare an Attachment Page,” below, for advice).

It’s easy to make changes to the lease or rental agreement form by using the electronic versions available for download on the Nolo website—for example, if you want to:

edit or add something to a clause

delete a clause (for example, Clause 18 on tenant rules and regulations, if you don’t have a separate set of these), or

add a new clause.

If your additions or modifications are very slight, and can be done in the margins of the lease or rental agreement, you may choose instead to enter them on the hard copy. If you do this, be sure that you and all tenants initial and date the insertions.

Be sure to renumber the clauses if you add or delete a clause. And if you make extensive changes on your own, you may wish to have your work reviewed by an experienced landlords’ lawyer.

FORM

Rental agreement and lease forms. You’ll find copies of the Month-to-Month Residential Rental Agreement and the Fixed-Term Residential Lease (in English and in Spanish) in Appendix C of this book. You can also download these forms on the Nolo website; the link is included in Appendix B of this book. A filled-in sample rental agreement is shown at the end of this chapter.

Clause 1. Identification of Landlord and Tenant

This Agreement is entered into between (Tenant) and (Landlord). Each Tenant is jointly and severally liable for the payment of rent and performance of all other terms of this Agreement.

Every lease or rental agreement must identify the tenant and the landlord or property owner—usually called the “parties” to the agreement. The term “Agreement” (a synonym for contract) refers to either the lease or the rental agreement.

Any competent adult—at least 18 years of age—may be a party to a lease or rental agree­ment. (A teenager under age 18 may also be a party to a lease if he or she has achieved legal adult status through court order, military service, or marriage.)

The last sentence of Clause 1 states that if you have more than one tenant, they (the cotenants) are all “jointly and severally” liable (legally responsible) for paying rent and abiding by all the terms of the agreement. This essential bit of legalese simply means that each tenant is legally responsible for the whole rent and complying with the lease. This part of the clause gives you important rights; it means you can legally seek the entire rent from any one of the tenants should the others skip out or be unable to pay. A “jointly and severally liable” clause also gives you the right to evict all of the tenants even if just one has broken the terms of the lease—for example, by seriously damaging the property.

How to Fill In Clause 1

In the first blank, fill in the names of all tenants—adults who will live in the premises, including both members of a married couple. It’s crucial that everyone who lives in your rental unit signs the lease or the rental agreement. This underscores your expectation that each individual is responsible for the rent, the use of the property, and all terms of the agreement. Also, make sure the tenant’s name matches his or her legal documents, such as a driver’s license. You may set a reasonable limit on the number of people per rental unit. (See “How Many Tenants to Allow,” below.)

In the second blank, list the names of all landlords or property owners who will be signing the lease or rental agreement. If you are using a business name, enter your name, followed by your business name.

EXAMPLE: Joe Smith, doing business as Apple Lane Apartments.

If more than one landlord or owner is signing the lease (such as husband and wife property owners), you may want to put both names on the lease if both of you plan to actively participate in managing the property.

Subject to the terms and conditions in this Agreement, Landlord rents to Tenant, and Tenant rents from Landlord, for residential purposes only, the premises located at (the premises), together with the following furnishings and appliances: . Rental of the premises also includes .

Clause 2 identifies the street address of the property being rented (the premises) and provides details on furnishings and extras, such as a parking space. The words “for residential purposes only” are to prevent a tenant from using the property for conducting a business that might affect your insurance or violate zoning laws, or that might burden other tenants or neighbors.

How to Fill In Clause 2

In the first blank, fill in the street address of the unit or house you are renting. If there is an apartment or building number, specify that as well as the city and state.

In the second blank, add details on furnishings and appliances. If the rental unit has only a few basic furnishings, list them in the text of Clause 2.

If the rental is fully furnished—for example, complete living room, dining room, and bedroom sets, plus a fully equipped kitchen (dinnerware, pots and pans, flatware, etc.), it makes sense to attach a separate room-by-room list to the lease or rental agreement. In this case, simply write in “The rental unit is fully furnished. See Attachment for a complete list of furnishings.” Or you can provide information on furnishings on the Landlord-Tenant Checklist included in Chapter 3.

Home Businesses on Rental Property

Over 20 million Americans run a business from their house or apartment. If a tenant wants you to modify Clause 2 to allow the operation of a business, you have some checking to do—even if you are inclined to say yes. For starters, you’ll need to check local zoning laws for restrictions on home-based businesses, including the type of businesses allowed (if any), the amount of car and truck traffic the business can generate, outside signs, on-street parking, the number of employees, and the percentage of floor space devoted to the business. And if your rental is in a planned unit or a condominium development, check the CC&Rs of the homeowners’ association.

You’ll also want to consult your insurance company as to whether you’ll need a different policy to cover the potential liability of tenants’ employees or guests. In many situations, a home office for occasional use will not be a problem. But if the tenant wants to operate a business that involves people and deliveries coming and going, such as a therapy practice, jewelry importer, or small business consulting firm, you should seriously consider whether to expand or add coverage. You may also want to require that the tenant maintain certain types of liability insurance, so that you won’t wind up paying if someone gets hurt on the rental property—for example, a business customer who trips and falls on the front steps.

Finally, be aware that if you allow a residence to be used as a commercial site, your property may need to meet the accessibility requirements of the

federal Americans with Disabilities Act (ADA). For more information on the ADA, see www.ada.gov or contact the U.S. Department of Justice, Disability Rights Section, Civil Rights Division, in Washington, DC, at 800-514-0301.

If you ultimately decide to allow a tenant to run a business from your rental property, you may want to provide details in Clause 22 (Additional Provisions) of your lease or rental agreement.

How to Prepare an Attachment Page

An attachment is simply a separate sheet with specific details relevant to a clause, such as a list of furnishings (Clause 2) or detailed rules and regulations (Clause 18). Every time you make an attachment, number and name it by referring to the relevant clause—for example, “Attachment 1, Addition to Clause 2, Identification of Premises,” “Attachment 2, Addition to Clause 18, Tenant Rules and Regulations.” Then, in the lease itself, refer to the attachment by name, like this: “See ‘Attachment 2, Addition to Clause 18, Tenant Rules and Regulations.’” Everyone signing the lease or rental agreement should sign and date each page of an attachment, and you should staple the attachment to the lease or rental agreement.

In some circumstances, you may want to elaborate on exactly what the premises include (do so in the third blank). For example, if the rental unit includes a parking space, storage in the garage or basement, or other use of the property, such as a gardening shed in the backyard or the use of a barn in rural areas, specifically include it in your description of the premises.

ExampleS:

Parking space #5 in underground garage

Open parking in lot on west side of building

Storage unit #5 in basement

Storage space available on west side of garage

If your parking rules are quite detailed—for example, covering guest parking—you may want to include them in Clause 18 (Tenant Rules and Regulations) of your lease or rental agreement.

Possible Modifications to Clause 2

If a particular part of the rental property that a tenant might reasonably assume to be included is not being rented, such as a garage or storage shed you wish to use yourself or rent to someone else, explicitly exclude it from your description of the premises. Simply add the following sentence, with details on what part of the property is excluded from the rental: “Rental of the premises excludes the following areas: .”

Clause 3. Limits on Use and Occupancy

The premises are to be used only as a private residence for Tenant(s) listed in Clause 1 of this Agreement, and their minor children. Occupancy by guests for more than is prohibited without Landlord’s written consent and will be considered a breach of this Agreement.

Clause 3 specifies that the rental unit is the residence of the tenants and their minor children only. It lets the tenants know that they may not move anyone else in as a permanent resident without your consent. The value of this clause is that a tenant who tries to move in a relative or friend for a longer period has clearly violated a defined standard, which gives you grounds for eviction. (New York landlords, however, are subject to the “Roommate Law.” See “How Many Tenants to Allow,” below, for details.)

Clause 3 also allows you to set a time limit for guest stays. Even if you do not plan to strictly enforce restrictions on guests, this provision will be very handy if a tenant tries to move in a friend or relative for a month or two, calling that person a guest. It will give you the leverage you need to ask the guest to leave, request that the guest apply to become a tenant with an appropriate increase in rent, or, if necessary, evict the tenant for violating this lease provision.

How Many Tenants to Allow

Two kinds of laws affect the number of people who may live in a rental unit.

State and local health and safety codes typically set maximum limits on the number of tenants, based on the size of the unit and the number of bedrooms and bathrooms.

Even more important, the federal government has taken the lead in establishing minimum limits on the number of tenants, through passage of the Fair Housing Act (42 U.S. Code §§ 3601-3619, 3631) and by means of regulations from the Department of Housing and Urban Development (HUD). HUD generally considers a limit of two persons per bedroom a reasonable occupancy standard. Because the number of bedrooms is not the only factor—the size of the bedrooms and configuration of the rental unit are also considered—the federal test has become known as the “two per bedroom plus” standard. States and localities can set their own occupancy standards as long as they are more generous than the federal government’s—that is, by allowing more people per rental unit.

The Fair Housing Act is designed primarily to disallow illegal discrimination against families with children, but it also allows you to establish your own “reasonable” restrictions on the number of people per rental unit—as long as your policy is truly tied to health and safety needs. In addition, you can adopt standards that are driven by a legitimate business reason or necessity, such as the capacities of the plumbing or electrical systems. Your personal preferences (such as a desire to reduce wear and tear by limiting the number of occupants or to ensure a quiet, uncrowded environment for upscale tenants),

however, do not constitute a legitimate business reason. If your occupancy policy limits the number of tenants for any reason other than health, safety, and legitimate business needs, you risk charges that you are discriminating against families.

Figuring out whether your occupancy policy is legal is not always a simple matter. Furthermore, laws on occupancy limits often change. For more information, call HUD’s Housing Discrimination Hotline at 800-669-9777, or check the HUD website at www.hud.gov. Check your local and state housing authority for other occupancy standards that may affect your rental property. The HUD website includes contact information for these agencies.

How to Fill In Clause 3

Fill in the number of days you allow guests to stay over a given time period without your consent. We suggest you allow up to two consecutive weeks in any six-month period, but, of course, you may want to modify this based on your own experience.

Caution

Don’t discriminate against families with children. You can legally establish reasonable space-to-people ratios, but you cannot use overcrowding as an excuse for refusing to rent to tenants with children, especially if you would rent to the same number of adults. (See “How Many Tenants to Allow,” above.) Discrimination against families with children is illegal, except in housing reserved for senior citizens only. Just as important as adopting a reasonable people-to-square-foot standard in the first place is the maintenance of a consistent occupancy policy. If you allow three adults to live in a two-bedroom apartment, you had better let a couple with a child live in the same type of unit, or you are leaving yourself open to charges that you are illegally discriminating.

Clause 4. Term of the Tenancy

This clause sets out the key difference between a lease and a rental agreement: how long a rent-paying tenant is entitled to stay. The early part of this chapter discusses the pros and cons of leases and rental agreements.

Lease Provision

The term of the rental will begin on , and end on . If Tenant vacates before the term ends, Tenant will be liable for the balance of the rent for the remainder of the term.

This lease provision sets a definite date for the beginning and the expiration of the lease and obligates both the landlord and the tenant for a specific term.

Most leases run for one year. This makes sense, because it allows you to raise the rent at reasonably frequent intervals if market conditions allow. Leases may be shorter (six months) or longer (24 months). This, of course, is up to you and the tenants. A long period—two, three, or even five years—can be appropriate, for example, if you’re renting out your own house because you’re taking a two-year sabbatical or if you have agreed to allow a tenant to make major repairs or remodel your property at his expense.

How to Fill In Clause 4 (Lease)

In the first blank, fill in the starting date of the lease. The starting date is the date the tenant has the right to move in, such as the first of the month. This date does not have to be the date that you and the tenant sign the lease. The lease signing date is simply the date that you’re both bound to the terms of the lease. If the tenant moves in before the regular rental period—such as the middle of the month and you want rent due on the first of every month—you will need to prorate the rent for the first partial month as explained in Clause 5 (Payment of Rent).

In the second blank, fill in the expiration date—in most leases, this will be a year from the starting date. Leases may be shorter (six months) or longer (two years), depending on your situation.

Rental Agreement Provision

The rental will begin on , and continue on a month-to-month basis. Landlord may terminate the tenancy or modify the terms of this Agreement by giving the Tenant days’ written notice. Tenant may terminate the tenancy by giving the Landlord days’ written notice.

This rental agreement provides for a month-to-month tenancy and specifies how much written notice you must give a tenant to change or end a tenancy, and how much notice the tenant must provide you before moving out. (Chapter 4 discusses changing or ending a month-to-month rental agreement.)

How to Fill In Clause 4 (Rental Agreement)

In the first blank, fill in the date the tenancy will begin. The date the tenancy will begin is the date the tenant has the right to move in, such as the first of the month. This date does not have to be the date that you and the tenant sign the rental agreement. The agreement signing date is simply the date that you’re both bound to the terms of the rental agreement. If the tenant moves in before the regular rental period—such as the middle of the month, and you want rent due on the first of every month—you will need to prorate the rent for the first partial month as explained in Clause 5 (Payment of Rent).

In the next two blanks, fill in the amount of written notice you’ll need to give tenants to end or change a tenancy and the amount of notice tenants must provide to end a tenancy. In most cases, to comply with the law of your state, this will be 30 days for both landlord and tenant in a month-to-month tenancy. (See the “State Rules on Notice Required to Change or Terminate a Month-to-Month Tenancy” chart in Appendix A for a list of each state’s notice requirements.)

Possible Modifications to Clause 4 (Rental Agreement)

This rental agreement is month to month, although you can change it to a different interval as long as you don’t go below the minimum notice period required by your state’s law. If you do, be aware that notice requirements to change or end a tenancy may also need to differ from those required for standard month-to-month rental agreements, because state law often requires that all key notice periods be the same.

Rent Control

Rent control may limit your right to terminate or change the terms of a tenancy. Even a month-to-month tenancy can be limited by a rent control ordinance. Check local rules for details.

Clause 5. Payment of Rent

Regular monthly rent.

Tenant will pay to Landlord a monthly rent of $ , payable in advance on the first day of each month, except when that day falls on a weekend or legal holiday, in which case rent is due on the next business day. Rent will be paid in the following manner, unless Landlord designates otherwise:

Delivery of payment.

Rent will be paid:

by mail, to

in person, at

Form of payment.

Landlord will accept payment in these forms:

personal check made payable to

cashier’s check made payable to

credit card

money order

cash

Prorated first month’s rent.

For the period from Tenant’s move-in date, , through the end of the month, Tenant will pay to Landlord the prorated monthly rent of $ . This amount will be paid on or before the date the Tenant moves in.

This clause provides details on the amount of rent and when, where, and how it’s paid. It requires the tenant to pay rent monthly on the first day of the month, unless the first day falls on a weekend or a legal holiday, in which case rent is due on the next business day. (Extending the rent due date for holidays is legally required in some states and is a general rule in most.) Clause 5 also covers prorating rent if a tenant moves in before the regular rental period.

How to Fill In Clause 5

Regular monthly rent. In the first blank, state the amount of monthly rent. Unless your premises are subject to a local rent control ordinance, you can legally charge as much rent as you want (or, more practically speaking, as much as the market will bear).

Delivery of payment. Next, specify to whom and where the rent is to be paid. If you accept payment by mail (most common), list the specific person (such as yourself) to whom rent checks will be mailed. Be sure the tenant knows the exact address, including the building or office name and suite number for mailing rent checks. If the tenant will pay rent in person, specify the address, such as your office or the manager’s unit at the rental property. Be sure to specify the hours when rent can be paid in person, such as 9 a.m. to 5 p.m. weekdays and 9 a.m. to noon on Saturdays.

Form of payment. Note all the forms of payment you’ll accept, such as personal check and money order, and to whom payment must be made. You can require that tenants pay rent only by check, or give them several options, such as personal check, money order, cashier’s check, or credit card.

tip

Looking for ways to ensure that rent payments are timely and reliable? Credit card and automatic debit are two common methods, especially for landlords with large numbers of rental units. If you accept credit cards, you must pay a fee—a percentage of the amount charged—for the privilege, but the cost may be worth it if accepting credit cards results in more on-time rent payments and less hassle for you and your tenants. In terms of automatic debit, you can get tenants’ permission to have rent payments debited automatically each month from the tenants’ bank accounts and transferred into your account. This may be a good option for tenants who are in the military. Many tenants will be leery of this idea, however, and it’s not worth insisting on.

Caution

Don’t accept cash unless you have no choice. You face an increased risk of robbery if word gets out that you are taking in large amounts of cash once or twice a month. And if you accept cash knowing that the tenant earned it from an illegal act such as drug dealing, the government could seize the money from you under federal and state forfeiture laws. For both these reasons, we recommend that you insist that rent be paid by check, money order, or credit card. If you do accept cash, be sure to provide a written, dated receipt stating the tenant’s name and the amount of rent paid. Such a receipt is required by law in a few states, and it’s a good idea everywhere.

Prorated first month’s rent. If the tenant moves in before the regular rental period—say in the middle of the month, and you want rent due on the first of every month—you can specify the prorated amount due for the first partial month. To figure out prorated rent, divide the monthly rent by 30 days and multiply by the number of days in the first (partial) rental period. That will avoid confusion about what you expect to be paid. Enter the move-in date, such as “June 21, 20xx,” and the amount of prorated monthly rent.

EXAMPLE: Meg rents an apartment for $1,800 per month, with rent due on the first of the month. She moves in on June 21, so she should pay ten days’ prorated rent of $600 when she moves in. ($1,800 ÷ 30 = $60 x 10 days = $600.) Beginning with July 1, Meg’s full $1,800 rent check is due on the first of the month.

If the tenant is moving in on the first of the month, or the same day rent is due, write “N/A” or “Not Applicable” in the section on prorated rent, or delete this section of the clause.

Possible Modifications to Clause 5

Here are a few common ways to modify Clause 5.

Rent due date. You can establish a rent due date different from the first of the month, such as the day of the month on which the tenant moves in. For example, if the tenant moved in on July 10, rent would be due on that date, a system which of course saves the trouble of prorating the first month’s rent.

Frequency of rent payments. You are not legally required to have your tenant pay rent on a monthly basis. You can modify the clause and require that the rent be paid twice a month, each week, or by whatever schedule suits you.

the value of highlighting your rent rules in a move-in letter to new tenants, and collecting the first month’s rent: Chapter 3

tenant’s obligations to pay rent when breaking a lease: Chapter 4, and

legal citations for state rent rules: Appendix A.

Rent Control

Communities in only five states— California, the District of Columbia, Maryland, New Jersey, and New York—have laws that limit the amount of rent landlords may charge and how and when rent may be increased. Typically, only a few cities or counties in each of these states have enacted local rent control ordinances (also called rent stabilization, maximum rent regulation, or a similar term), but often these are some of the state’s largest cities—for example, San Francisco, Los Angeles, New York City, and Newark all have some form of rent control.

Rent control laws commonly regulate much more than rent. For example, owners of rent-controlled properties must often follow specific “just cause” eviction procedures. And local rent control ordinances may require that your lease or rental agreement include certain information—for example, the address of the local rent control board.

If you own rental property in a city that has rent control, you should always have a current copy of the ordinance and any regulations interpret­ing it. Check with your local rent control board or city manager’s or mayor’s office for more information on rent control, and modify our forms accordingly.

Clause 6. Late Charges

If Tenant fails to pay the rent in full before the end of the day after it’s due, Tenant will pay Landlord a late charge as follows: . Landlord does not waive the right to insist on payment of the rent in full on the date it is due.

It is your legal right in most states to charge a late fee if rent is not paid on time. This clause spells out details of your policy on late fees. Charging a late fee does not mean that you give up your right to insist that rent be paid on the due date. To bring this point home, Clause 6 states that you do not waive the right to insist on full payment of the rent on the date it is due. A late fee is simply one way to motivate tenants to pay rent on time.

A few states have statutes that put precise limits on the amount of late fees or when they can be collected. (See the Late Fees column in the “State Rent Rules” table in Appendix A before completing this clause.)

Rent Control

Some rent control ordinances also regulate late fees. If you own rental units in a municipality with rent control, check the ordinances carefully.

But even if your state doesn’t have specific rules restricting late fees, you are still bound by general legal principles (often expressed in court decisions) that prohibit unreasonably high fees. Unless your state imposes more specific statutory rules on late fees, you should be on safe ground if you adhere to these principles:

The total late charge should not exceed 4%–5% of the rent. That’s $40 to $50 on a $1,000-per-month rental.

If the late fee increases each day the rent is late, it should be moderate and have an upper limit. A late charge that increases without a maximum could be considered interest charged at an illegal (“usurious”) rate. Although state usury laws don’t directly apply to late charges, judges often use these laws as one guideline in judging whether a particular provision is reasonable. Most states set the maximum interest rate that may be charged for a debt at about 10% to 12%. A late charge that would generally be acceptable for a $1,000 per month rent would be a charge of $10 if rent is not paid by the end of the second business day after it is due, plus $5 for each additional day, up to a maximum of 5% of the monthly rental amount.

Caution

Don’t try to disguise excessive late charges by giving a “discount” for early payment. One landlord we know concluded that he couldn’t get away with charging a $100 late charge on an $850 rent payment, so, instead, he designed a rental agreement calling for a rent of $950 with a $100 discount if the rent was not more than three days late. Ingenious as this ploy sounds, it is unlikely to stand up in court in many states, unless the discount for timely payment is modest. Giving a relatively large discount is, in effect, the same as charging an excessive late fee, and a judge is likely to see it as such.

How to Fill In Clause 6

In the first blank, specify how many days (if any) you will allow as a grace period before you charge a late fee. You don’t have to give a grace period, but many landlords don’t charge a late fee until the rent is two or three days late. If you don’t allow any grace period, simply cross out the first blank and the word “after,” so that the first line reads “If Tenant fails to pay the rent in full before the end of the day it’s due....”

Next, fill in details on your late rent fee, such as the daily charge and any maximum fee.

Possible Modifications to Clause 6

If you decide not to charge a late fee (something we consider highly unwise), you may simply delete this clause, or write the words “N/A” or “Not Applicable” on it.

Clause 7. Returned Check and Other Bank Charges

If any check offered by Tenant to Landlord in payment of rent or any other amount due under this Agreement is returned for lack of sufficient funds, a “stop payment,” or any other reason, Tenant will pay Landlord a returned check charge of $ .

As with late charges, any bounced-check charges you require must be reasonable. Generally, you should charge no more than the amount your bank charges you for a returned check, probably $15 to $20 per returned item, plus a few dollars for your trouble. Some states regulate the maximum amount you can charge. Check with your state consumer protection agency for any restrictions on bounced-check charges. A list of state consumer protection agencies is available at www.usa.gov.

Tip

Don’t tolerate repeated bad checks. If a tenant habitually pays rent late or gives you bad checks, give written notice demanding that the tenant pay the rent or move within a few days. How long the tenant is allowed to stay depends on state law; in most places, it’s about three to 15 days. In most instances, the tenant who receives this kind of “pay rent or quit” notice pays up and reforms his ways, and that’s the end of it. But, if the tenant doesn’t pay the rent (or move), you can file an eviction lawsuit. An alternative is to serve the tenant with a 30-day notice to change Clause 5 of the lease or rental agreement to require payment with a money order or a verified credit card transaction.

How to Fill In Clause 7

In the blank, fill in the amount of the returned check charge. If you won’t accept checks, fill in “N/A” or “Not Applicable.”

Full Version of this chapter (Chapter 1) is available with the purchase of the Book or eBook.